USDInd faces triple risk cocktail :: InvestMacro

• USDInd ↓ 5% from 2024 high

• US Presidential debate, CPI & ECB in focus

• Euro accounts for almost 60% of USDInd

• Over past year US CPI triggered moves of ↑ 0.7% & ↓ 0.6%

• First levels of interest  – 101.94  & 100.52

As the countdown gets closer to the key US jobs report later today (Friday, September 6), mindful investors are keeping tabs on what’s to come in the week ahead.

A combination of economic and political forces could spell fresh volatility for global markets:

Monday, 9th Sept  

• CN50: China PPI, CPI
• JP225: Japan GDP
• TWN: Taiwan trade
• US500: US wholesale inventories
• NAS100: Apple iPhone 16 product launch

Tuesday, 10th Sept  

• AU200: Australia consumer confidence
• CN50: China trade
• GER40: Germany CPI
• UK100: UK jobless claims, unemployment
• USDInd: Trump vs Harris Presidential debate

Wednesday 11th Sept

• UK100: UK industrial production
• USDInd: US August CPI report

Thursday, 12th Sept

• JP225: Japan PPI
• NZD: New Zealand food prices
• US500: US initial jobless claims, PPI
• USDInd: ECB rate decision

Friday, 13th Sept

• EU50: Eurozone industrial production
• JP225: Japan industrial production
• NZD: New Zealand PMI
• US500: US University of Michigan consumer sentiment

Our focus is on FXTM’s USDInd which could be rocked by three heavy-hitting events.

Looking at the charts, the dollar has shed over 5% from its 2024 high due to expectations around lower US interest rates. Fears of a US recession have also empowered bears with prices trading near a yearly low.

Note: FXTM’s USDInd tracks the US Dollar Index.  This measures how the dollar performs against a basket of six different G10 currencies, including the Euro, British Pound, Japanese Yen, and Canadian dollar.

With the US jobs report just a few hours away, the USDInd may end this week with a bang!

Still, more volatility could be on the cards next week and here are 3 reasons why:

 

    1) Trump vs Harris: US Presidential debate

All eyes will be on the US presidential debate between Donald Trump and Kamala Harris scheduled for Tuesday, September 10th.

Both are expected to debate key economic issues, geopolitics and policies among other topics. It is worth noting that the US election is less than two months away with national polls showing Kamala Harris leading narrowly. This development could add more spice to the upcoming debate which could impact the overall election outcome.

• Whatever the outcome of this major political event, it could trigger fresh volatility for the dollar and global markets.

    2) US August CPI report

The August US Consumer Price Index (CPI) report on Wednesday, September 11th may heavily influence bets around how aggressively the Fed cuts rates this month and onwards.

Note: This is the final inflation report before the Fed’s September 17 – 18 policy meeting!

Markets are forecasting CPI to rise 0.2% month-on-month in August and cool to 2.6% year-over-year from the 2.9% prior.  Regarding the core print, this is forecast to rise 0.2% month-on-month while remaining at 3.2% year-on-year. Markets will be looking for more signs of cooling price pressures which may reinforce bets around lower US rates.

Golden nugget: Over the past year, the US CPI report has triggered upside moves of as much as 0.7% or declines of 0.6% in a 6-hour window post-release.

• The USDInd could fall on more signs of cooling price pressures.

• Should the US CPI report print higher than expected, this could push the USDInd higher.

 

    3) ECB rate decision

The ECB is widely expected to cut interest rates by 25 basis points at its meeting on Thursday, September 12th.

So, much focus will be on the GDP and inflation forecasts of the staff economists along with President Lagarde’s press conference for fresh insight. With annual inflation in the Eurozone falling to 2.2% in August from 2.6% in the previous month, this supported bets around lower ECB rates.

Note: The Euro accounts for almost 60% of the USDInd weighting. A weaker euro tends to push the index higher and vice versa.

As of writing, traders have fully priced in a 25-basis point ECB cut next week with the odds of another cut by October currently at 45%.

• The USDInd could push higher if the ECB cuts rates and signals more down the road.

• Should the central bank sound less dovish than expected on future cuts, this could drag the USDInd lower as the Euro strengthens.

Golden nugget: Over the past 12 months, the ECB rate decision has sparked upside moves as much as 0.4% or declines of 0.3% in the 6 hours post-release.

 

    4) Technical forces

Prices remain under pressure on the daily charts with prices trading below the 50, 100 and 200-day SMA. However, the Relative Strength Index (RSI) is flirting near oversold territory.

• A sold breakout above 101.94 may signal a move towards 103.27.

• Should prices slip below 100.52, bears may be encouraged to target 99.60 and potentially lower.

*Note this report was published before the key US jobs report on Friday.*